HOME SALES DIVE – AT 5:58 P.M. ET:  The idea of an economic "recovery" took a big hit last month, as home sales tumbled:

WASHINGTON (AP) -- Sales of previously occupied homes took the largest monthly drop in more than 40 years last month, sinking more dramatically than expected after lawmakers gave buyers additional time to use a tax credit.

The report reflects a sharp drop in demand after buyers stopped scrambling to qualify for a tax credit of up to $8,000 for first-time homeowners. It had been due to expire on Nov. 30. But Congress extended the deadline until April 30 and expanded it with a new $6,500 credit for existing homeowners who move.

"It's 'exit stage left' for first-time homebuyers," wrote Guy LeBas, an analyst with Janney Montgomery Scott.

December's sales fell 16.7 percent to a seasonally adjusted annual rate of 5.45 million, from an unchanged pace of 6.54 million in November, the National Association of Realtors said Monday. Sales had been expected to fall by about 10 percent, according to economists surveyed by Thomson Reuters.

The report "places a large question mark over whether the recovery can be sustained when the extended tax credit expires," wrote Paul Dales, U.S. economist with Capital Economics.

COMMENT:  This will continue unless new jobs are generated, the credit markets return to normal, and people become sane about home values.  One of the worst things that happened economically in this country over the last 25 years is that the American people started believing that their fortunes were in their homes.  They are not.  They are in their work, their savings, and their financial plans. 

Home prices are a function of many things, but home prices that are too high can actually do devastating damage to an economy, as they have in New York.  The high cost of living in New York has turned it into an out-migration state, and the people leaving are the most productive citizens.  Reasonable, and sane, housing policies attract young people, entrepreneurs, and businesses.

This recession is far from over.  What some economists fear is a "double dip" recession, with the second dip occurring later this year.

January 25, 2010